Iguá Saneamento's US$800mn bid wins Sergipe water services contract

Iguá Saneamento has won a water services concession offered by Brazil’s Sergipe state with a bid of 4.5 billion reais (US$803 million). 

In the auction held on Wednesday, Iguá outbid water companies BRK Ambiental and Aegea Saneamento, and investment firm Pátria Investimentos. The minimum fee for the 35-year contract was 2bn reais, and the estimated investment is about 6.3bn reais.  

"The auction showed that the sanitation sector in Brazil is somewhat consolidated in terms of private sector participants. I don't see much room for many other new players to enter the sector,” João Cortez, a partner at infrastructure consultancy Vallya, told BNamericas.

Around 4.7bn reais will be invested in the first 10 years, benefiting a population of 2.3mn in 74 municipalities.

"We will disclose the details of the financing at a future time, but what I can share for now is that it will consist of a portion of capital contribution from our current shareholders, which has already been approved, and a portion will be financed, for which we already have firm commitments from banks. So, as far as it is possible to have structured financing at this stage, we already have it, but we will continue to review our strategy over time," Roberto Barbuti, CEO of Iguá Saneamento, told BNamericas shortly after the auction result.  

The concession was structured with the support of the BNDES development bank.

It is a partial concession because state firm DESO will continue to collect raw water and treat it, while Iguá will be responsible for supply and expansion of the network.

Under the contract, water coverage must reach 99% of Sergipe's urban areas by 2031, 99% of rural communities by 2033, and sewerage services must be available for 90% by 2033.

Iguá is controlled by Canada Pension Plan (CPP) and Alberta Investment Management Corporation, or Aimco, while BNDES has a minority stake.

Private companies entered the sector after a new regulatory framework was approved in 2020. The framework included obligations for local administrations to guarantee full water services coverage by 2033.

Piauí state is expected to offer a 9.57bn-real water concession on October 30. The auction was initially planned for August 14, but interested companies requested contract revisions, including improved financing conditions.

The concession covers the operation and maintenance of a 5,253km potable water network and 601km of sewage systems. The original notice for the public tender stipulates that the bidder offering the lowest monthly rate and the highest grant value would win the 35-year contract.

The concession aims to supply potable water to 99% of the population by 2033 and sanitation services to 90% by 2040.

Brazil’s cities ministry recently raised the limit on private firms' financing of water tender fees with local bonds, or debentures, from 50% of the amount offered to 70%.

“We have municipal elections in October. Once elected mayors take office in January 2025, localities will have new administrations and from then on, we likely see more contracts being offered by municipalities and even consortiums of municipalities instead of state governments, similar to what’s been happening this year,” said Cortez.